The goods and service tax was introduced in the year 2017. Earlier a person had to pay many kinds of taxes on home loans such as local, state, central, etc. and after the introduction of the GST, there is only one tax that is payable on the home loan.

The real estate properties have also been brought under the realm of goods and services tax. An amount of 0%, 5%, 12%, 18%, and 28% will be charged on various goods and services. The ready to move in houses have been exempted from the liability to pay GST. GST applies to the under-construction properties at an effective rate of 12% on the home loan availed by the buyer.

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Is GST charged on a home loan?

The direct answer to this question is yes, GST does impact the home loans as at present service charges, and VAT is not charged and GST is charged in their place. Goods and Services Tax is fixed at a rate of 18% across India and it also affects the processing fee, advocate fee, valuation fee, and other charges that are to be paid to the bank for the availing home loan. The fact that the earlier rate that was applicable was 15% and after the introduction of GST it has been increased by 3% brings in marginal changes on your home loan.

However, some of the things that are not impacted with the introduction of the home loan are that interest is payable on the amount availed as loan and that the stamp duty charges that have been levied for the documentation purposes of the home loan will not be subsumed.  Several experts have stated that there has been a sizable effect that GST has brought about in home loans as for ready to move in houses, a GST amount of 18% is charged on the ready to move in houses while in case of under-construction homes, the slab of GST is at 12%.

Is GST charged on no-cost EMI?

Yes, GST is charged on the ‘no-cost EMI’. The No-Cost EMI is a facility that is usually provided by the sellers and not by the bank and on availing the no-cost EMI, the seller also grants an instant discount on the bank interest, processing fee. Etc. that is charged on the EMI. The banks further charge a GST on the interest and the processing fee. RBI in its circular in the year 2013 held that there is no concept of zero cost EMI and that it is non-existent.

They also stated that most of the sellers engage with banks and use zero-cost EMI as a marketing tactic. The central bank in its circular regarding No Cost EMI stated that banks generally camouflage the interest element along with the processing fee. One major criticism received by the no-cost EMI is that the interest rates that are charged on such schemes are generally high and that a Goods and Services Tax amount equivalent to 18% on the interest amount is levied on the interest.

Is there any Goods and Services Tax on loan interest?

Interest on loan, deposits, or advances is not taxable according to the law. Item 8 provides that the extending of deposits, loans, or advances, interest, or discount (apart from those availed on the credit card services) are excluded from GST. There has been a lot of ambiguity with the exemption list 8. This has been narrowed down in a case called Delhi Chit Fund Association v. Union of India wherein it has been stated that the difference between the interest rate on which the GST is charged is a thin layer.

All the other expenses are chargeable except for the discounts and the interest on a bank loan. GST is chargeable on regular charges such as processing fees, documentation charges, service charges, collection charges, inspection charges, repossession charges, foreclosure or prepayment charges, etc.

Is GST charged on EMI?

The answer to this question would be yes. They are charged at a rate of 18%. Listed below are a few ways in which the introduction of Goods and Services Tax has affected or impacted the EMI of a home loan:

  • The Equated Monthly Installment (EMI) has been made cheaper for those that have availed the home loan on their under-construction property. The introduction of Goods and Services Tax has eliminated all the other taxes and has set the slab of 12% for those properties that are under construction.
  • As already stated, Goods and Services Tax is applied all over India at a rate of 18% and it also eliminates all other taxes such as service tax, VAT, etc.
  • Since Goods and Services Tax is charged on EMI, the amount that has been paid as interest has also increased in a significant manner and this has led to the lenders and banks increasing the rates that are associated with the home loan. Processing fee and other charges imposed by the bank in sanctioning the home loan is also charged at 18% which also impacts the EMI that is payable.

Goods and Services Tax variations on different types of assets

The new indirect tax regime under the Goods and Services Tax (GST) which was rolled out on 1 July 2017, had witnessed a considerable amount of confusion over how the new taxation system will affect business and the payment of taxes. The Goods and Service Tax (GST) has subsumed a number of local taxes that were levied on goods and services. There are basically four types of GST variations prevailing that includes:

  1. CGST ( Central Government)
  2. SGST (State Government)
  3. IGST ( Central Government and State Government)
  4. UTGST/UGST (Union Territory{UT} Government)

PMAY Scheme – GST Benefits

Under the PMAY scheme, the government has decided to reduce the Goods and Services Tax rates from 12% to 8% on all the applicable home loans under PMAY CLSS (Credit Linked Subsidy Scheme). Properties that are still under construction under the CLSS are also eligible for a reduced Goods and Services Tax of 8%. Applicants under the EWS, MIG, and LIG can avail the benefits of these reduced rates. The reduced GST is a boon for the builders as well. The 8% GST allows a scope for sufficient incentive for the builders and developers under the affordable housing projects.


Summing up, it is to be stated that the introduction of Goods and Services Tax has had a great impact on the real estate market. It has various pros and cons in the residential sector based on the type of property (i.e. ready to move in and under-construction property). Goods and Services Tax has had several impacts on the home loan and the charges associated with the acquiring of a home loan. Processing fee, advocate fee, valuation fee, and other charges, are all affected by Goods and Services Tax. However, interest on the loan is not charged with Goods and Services Tax.

EMI has also been affected by the Goods and Services Tax as the increment in the cost of acquiring loans from 15% to 18% has shown its effects on the equated monthly installment as well. Various e-commerce websites provide zero cost EMI which has been pronounced by RBI as a non-existent scheme for which the interest rates are charged high and various users that have availed the ‘no-cost policy’ have stated that Goods and Services Tax has been charged on the interest rate as well.